Economic Growth: Principles, Government, and Competition

Introduction to Economic Growth

Economic growth can be described as a measure through which the output of an entire economy grows or increases. Since this growth may be national, regional, or global, economic growth does not necessarily refer to growth in the sales of any single industry or business. Economic growth is usually determined through various factors such as Gross Domestic Product (GDP) or Gross National Product (GNP). These measures of determining economic growth are considered on the basis of an economy's income or output. In addition to these, there are other important factors that play a crucial role in economic growth, which is governed by principle. They include the government, competition, and internal and external factors whose roles are crucial in economic growth and development.

Principles of Economic Growth and Business Cycles

Business growth and the economic cycle are processes that are primarily driven by similar microeconomic variables from a theoretical perspective. Generally, these processes are driven by the relations between economic fluctuations. A business cycle is usually a by-product of fluctuations that an economy experiences within a period of time due to changes in economic growth (Department of Economics, n.d.). Consequently, understanding the business cycle is essential in macroeconomics, as it helps economists identify and prepare for future economic events.

A business cycle primarily describes changes in the demand side of the economy, which is usually measured by Gross Domestic Product. As economic growth occurs, business cycles occur because GDP does not remain constant — it changes for both economic and non-economic reasons. Economic reasons include changes in governmental policies such as interest rates and taxes, whereas non-economic factors include natural and man-made disasters. Some of the most common stages in a business cycle that occur based on changes in economic growth include peak or boom, recession, slump or trough, and expansion or recovery ("The Economy and Business," 2011, p. 8).

One of the most important elements in economic growth is economic variables — economic measures that can differ across a range of values. Some of the major economic variables include the unemployment rate, the inflation rate, interest rates, and changes in exchange rates. Changes in interest rates can be described as the costs of borrowing money. While banks generate interest as a return for lending money, consumers' interest rates are usually reflected in the return on savings. Some of the economic changes that occur due to changes in interest rates include increased demand, a reduction in the price of exported products, decreased business costs, and increased business profits. Increases in demand occur because of demand for both consumer goods and capital goods, whereas reduced prices occur in exported products.

Changes in exchange rates represent the prices of a country's currency as expressed in relation to another. These changes contribute to economic shifts based on their effect on how a company exports its products, competes against imported goods, and uses imported materials in its production processes. As a result, economic changes occur when a country decides to lower the price of exported goods or raise the price of imported goods. When there are changes in the employment rate, businesses are affected and economic changes follow. For instance, increases in the unemployment rate contribute to a reduction in overall demand, which is harmful for businesses and the economy. When a country is experiencing inflation, economic changes occur as businesses find goods and services more costly to provide. This is accompanied by increased wages and rises in other costs, which affect the overall economy.

Role of Government in Economic Growth and Development

Government plays an important role in economic growth and development through policies and the establishment of an economic framework. Generally, the government influences various economic factors by controlling the level of taxation and government spending. Governmental influence operates through the public sector, which is composed of organizations that are influenced and managed by the government. In contrast, the private sector consists of organizations that are privately owned without government involvement. Therefore, public sector businesses are owned and operated by the government, while private sector businesses are privately owned.

Some of the economic advantages of public sector businesses include the fact that they encourage industrial growth in underdeveloped areas and conduct business for societal well-being. The disadvantages include their vulnerability to management problems that may affect the entire economy. The significance of the private sector in the economy is that there are no restrictions on the number of shareholders and investors, whereas its disadvantage is the likelihood of exploitation (Kumari, 2013).

Conclusion

The economic environment in which businesses operate is very diverse and wide, and is characterized by several microeconomic issues. In order to achieve their respective business objectives, companies need to examine the necessary microeconomic factors. This process enables them to understand the nature of the business environment and adopt appropriate strategies that contribute to growth and productivity. Some of the most important things to consider include understanding the business cycle, the principle of economic growth, the governmental role in economic growth, competition, and growth processes.